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The top 10 mistakes employers make when handling a redundancy

No one likes to make redundancies. However; handling a redundancy fairly and sensitively can prepare an employee to face the job market and to leave the workplace with dignity. This, in turn, reduces the risk of successful tribunal claims and/or reputational damage for the employer.

Below, we continue our series of blogs by discussing the top 10 mistakes employers make when handling a redundancy.

redundancy/relocationNot “applying their mind” to the selection pool

In situations where an employer is selecting employees for redundancy, an employer needs to consider the pool of employees for selection. Normally, employees who are carrying out the “same or similar” work are pooled together. An employer should also consider whether it is appropriate to pool employees whose roles are “interchangeable”.

Ultimately, employers have a wide discretion and need only show that they have “applied their mind” to the question and not acted unreasonably. A wider pool enables the employer to select the poorest performers across more areas of the business, but a narrower pool limits the employees affected and enables the rest of the employees to get on with their job without the fear of being made redundant.

Using unfair selection criteria

Any selection criteria ought to be objective and clear. This is not to say that the selection criteria cannot include a subjective element, but any opinions should be supported by objective evidence. Attendance, length of service and disciplinary record are all popular choices because they are easy to define and score. However; an employer will often want to attach the most weight to performance, in which case any scores should be cross referenced to documents such as appraisals or financial data as much as possible. This is otherwise another area where the employer enjoys a wide discretion and, provided there is no evidence of perversity or bad faith, a tribunal will not carry out a rescoring exercise.

Applying the selection criteria in a manner which could amount to discrimination

Employers may have a fair selection criteria, but they also need to show that they have applied the criteria fairly to avoid claims of unfair dismissal. Furthermore, there is the potential for discrimination in the way an employer applies its selection criteria. For instance, when scoring employees for attendance an employer should discount pregnancy related absence and they should also consider adjusting the score for disability related absence. Length of service criteria, or “last in first out” (LIFO), could also amount to age discrimination. Employers should not necessarily be discouraged from using this criteria, but they should establish a legitimate business objective for the criteria (such as retaining an experienced workforce)and that the use of that criteria was proportionate.

Rushing the consultation, or not consulting at all

Employees need to be adequately warned and consulted about their proposed redundancy. “Collective consultation”, which we discuss below, requires minimum statutory consultation periods of 30 or 45 days depending on the proposed number of redundancies. However; where collective consultation does not apply, there are no hard and fast rules about what amounts to “adequate consultation” and this will vary depending on the facts of each case. However, put simply, employers should discuss the reasons for the proposals, the selection pool, the selection criteria and any alternatives to redundancy. Employees should be provided with a copy of their scores, the rationale for those scores and the score they needed to achieve to avoid redundancy (the “cut off score”).

The essence of consultation is that the employee is given an opportunity to comment and challenge the proposals and that the employer genuinely considers and responds to those points. Rushing or merely paying lip service to the consultation procedure is likely to lead to a finding of unfair dismissal. Employers should also be mindful of their own redundancy policies and any other contractual redundancy arrangements.

Failing to properly consider alternatives to redundancy

Unless the employer is facing total business closure, one of the most common alternatives to redundancy is employment elsewhere in the business. Employers can forget this step, or consider it too late in the process, and a failure to offer a vacancy which is suitable for the employee is likely to amount to an unfair dismissal. Employers are not obliged to offer unsuitable vacancies. However, employees will often complain at a later date that they would have accepted a junior role or that they ought to have been considered for a more senior position. It is safer to avoid making assumptions by providing the employees at risk with a vacancy list. The employees can then express an interest in those roles during the consultation process.

Failing to consider voluntary redundancy

Employers are not legally obliged to invite volunteers for redundancy, although it can help a defence to unfair dismissal as it demonstrates that efforts have been made to avoid compulsory redundancy. In addition, from a commercial point of view, voluntary redundancy can save an employer a considerable amount of time. By accepting redundancy at an early stage, employers can potentially avoid some or all of the time involved in applying selection criteria and holding consultation, dismissal and then appeal hearings. Employees who accept voluntary redundancy are also highly unlikely to bring claims of unfair dismissal. Employers are not obliged to accept volunteers for redundancy, unless they have agreed otherwise, so the best performing employees can still be retained by the business.

Failing to keep a trial period under review

Employees are entitled to a statutory trial period of 4 weeks when they accept an alternative role that differs from their old role, although the trial period can be extended to retrain the employee in the new role. Employers should be careful to keep the trial period under review. If an employer decides that the new role is unsuitable for the employee, then the employer needs to give notice of dismissal during the trial period if the employee is to be dismissed on the grounds of redundancy. Any dismissal after the trial period would not usually amount to a redundancy and the employer could be required to performance manage the employee instead.

Discriminating against employees on maternity leave

It can be fair to make an employee on maternity leave redundant. However, employees at risk of redundancy during maternity leave do have special protection. In particular; an employee on maternity leave has the right to be offered first refusal of any suitable alternative employment over and above any other employees who are not on maternity leave, regardless of whether she is the best person for the job. Selecting an employee for redundancy because of pregnancy or childbirth is also direct discrimination for which there is no defence, but well-meaning employers can sometimes overlook an employee on maternity leave during a consultation process. For these reasons, some employers will wait to announce redundancy proposals until an employee returns to work. This is not always desirable or necessary, but if employers do proceed then they should be careful to avoid discrimination which could lead to uncapped compensation in an employment tribunal.

Failing to consider whether the expiry of a fixed term contract amounts to a dismissal on the grounds of redundancy

The expiry of a fixed term contract on the agreed termination date will not trigger collective consultation. However; a fixed term contract that expires because the work has ceased or diminished will still amount to a redundancy. So, for example, an employee recruited to carry out work on a particular project will be classed as redundant when that project comes to an end. Such employees will have the same unfair dismissal protection and the same right to a redundancy payment if they have at least two years’ service. Therefore, employers should still consider all of the same redundancy issues and individually consult with those employees before the expiry and non-renewal of the contract.

Failing to consider whether collective consultation is necessary

When an employer is proposing to dismiss 20 or more employees at one establishment within a period of 90 days or less, collective consultation will apply. Collective consultation requires an employer to comply with a number of additional obligations, including minimum consultation periods and the election of employee representatives. The financial consequences of non -compliance can be severe as a tribunal can award a “protective award” of anything up to 90 days’ gross pay per employee (in addition to unfair dismissal compensation). What amounts to “establishment” is currently the subject of much debate and we are still waiting for a decision from the European Court of Justice to shed more light on this. However, employers should be conscious of the risk of collective consultation applying whenever it considers redundancy within the workplace, taking legal advice where necessary.

Other blogs of interest:

Establishing the establishment

Mobility clauses and redundancy

The Three R’s – Redundancy, Redeployment and Reasonable Adjustments

Temporary closure of a business – how do you deal with your staff?

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further